Determination of New York DEC Waiver Affirmed

FERC Denies Rehearing of 2018 Order Finding Waiver Despite Deadline Extension Agreement
Mark Reishus
April 11, 2019 at 11:52:30 ET

On April 2, 2019, FERC denied rehearing of an Aug. 6, 2018 order that included a determination that New York State Department of Environmental Conservation (New York DEC) waived its authority, under section 401 of the Clean Water Act (CWA), to issue or deny a water quality certification for the Northern Access 2016 Project proposed by National Fuel Gas Supply Corp. and Empire Pipeline Inc. (collectively, National Fuel), by failing to act within a year from when it received the application for water quality certification. In their rehearing requests, New York DEC and the Sierra Club noted that National Fuel agreed to an extension of the one-year deadline for acting on its application to New York DEC. In FERC’s view, “National Fuel and New York DEC cannot enter into ‘a written agreement … to delay water quality certification.’ ”

Section 401

Section 401 of the CWA requires that any application for a Federal license or permit to conduct any activity which may result in any discharge into navigable waters must obtain a water quality certification from the state in which the discharge will originate. If the state “fails or refuses to act on a request for certification within a reasonable period of time (not to exceed one year) after receipt of such request,” then the certification requirement is waived.

Relevant History of Proceeding

On March 2, 2016, New York DEC received National Fuel’s application for a water quality certification for the Northern Access 2016 Project.

On Jan. 20, 2017, New York DEC and National Fuel agreed in a letter to extend the state agency’s period for decision under section 401 by establishing April 8, 2016 as the date on which the application was deemed received by New York DEC.

On Feb 3, 2017, FERC authorized the construction and operation of the Northern Access 2016 Project (National Fuel Gas Supply Corp. and Empire Pipeline Inc., 158 FERC ¶61,145 (2017) [Docket Nos. CP15-115-000 and CP15-115-001] (Certificate Order)).

On March 3, 2017, National Fuel filed a “Request for Reconsideration and Clarification or, in the Alternative, Rehearing” of the Certificate Order. Among other things, National Fuel argued that FERC erred by not finding that New York DEC’s failure to issue a decision on the water quality certification application by Oct. 25, 2016, the end of the federal authorization period set forth in FERC’s Notice of Schedule for Environmental Review of the project, resulted in a waiver of any requirement that National Fuel obtain such a certification with respect to the project facilities in the State of New York.

On April 7, 2017, New York DEC denied National Fuel’s application for water quality certification.

On Aug. 23, 2017, National Fuel moved for expedited action on its March 3, 2017 request for rehearing, noting that the request afforded the Commission an opportunity to “reinforce the appropriate balance between state and federal jurisdiction over separate and distinct elements of the natural gas industry.” National Fuel argued that “New York State may not … through permits preempted by the federal Natural Gas Act [(NGA)] or through the belated action of [New York DEC] with respect to an already-waived federal authorization, lawfully prevent the transportation of natural gas produced in other states from entering into or passing through the State of New York. Such a blockade of interstate and international commerce is precisely what the State of New York’s actions seek to accomplish and are contrary to the principles of cooperative federalism embodied in the [NGA]. A favorable order on rehearing will remove New York’s unlawful obstacles to the … Project, restore the proper balance between state and federal jurisdiction, and implement clearly-established and important federal policies.”

On Dec. 5, 2017, National Fuel filed a “Renewed Motion for Expedited Action.” National Fuel asserted that its March 3, 2017 request for rehearing “provided substantial details concerning numerous New York permits and authorizations and demonstrated that all such permits and authorizations are either preempted by the NGA or, in the case of the [CWA] Section 401 Water Quality Certification (‘WQC’) for the New York portion of the Project, waived.” National Fuel suggested that any delay in FERC’s resolution of the March 3, 2017 request for rehearing “threatens to unduly stall … state-court proceedings, which will operate to National Fuel’s significant detriment if it is ultimately required to obtain those permits. That result would further undermine Congressional intent and Executive Branch policies to expedite proceedings on natural gas pipeline projects and do violence to the Commission’s specific analysis of the public interests that favor this Project.”

Waiver Order

On Aug. 6, 2018, in National Fuel Gas Supply Corp. and Empire Pipeline Inc., 164 FERC ¶61,084 (2018) [Docket Nos. CP15-115-002 and CP15-115-003] (Waiver Order), FERC denied rehearing of the Certificate Order.

Among other things, FERC found that, through its Dec. 5, 2017 renewed motion, National Fuel “presented evidence of waiver separate from the claims made in [its] March 3, 2017 request for rehearing and … effectively petitioned the Commission for a waiver determination. Accordingly, we treat the waiver claim asserted [in] the December 5, 2017 filing as a motion requesting a waiver determination.”

FERC noted that National Fuel asserted two distinct bases for a determination that New York DEC waived its authority to issue or deny a water quality certification for the proposed project: (1) because New York DEC failed to act on the application for a water quality certification within the 90-day period established in FERC’s notice of schedule for environmental review for the project, it waived certification; (2) because New York DEC failed to act within one year of the date it received the water quality certification application, it waived certification.

FERC rejected the first basis and explained that its notice of schedule for environmental review for the proposed project “does not apply to a water quality certification because section 401 of the [CWA] provides an ‘applicable schedule established by Federal law’ when it requires that state or federal agencies act on a request for certification ‘within a reasonable period of time (which shall not exceed one year) after receipt of such request ….’ ”

Addressing the second basis, FERC cited its long-standing interpretation that a certifying agency waives the certification requirements of section 401 if the agency does not act within one year after the date that it receives a request for certification. “Our interpretation gives effect to the plain meaning of the words ‘after receipt of such request.’ The execution of an agreement between an applicant and a certifying agency does not entail a ‘receipt’ by the agency. Only if an applicant withdraws and refiles an application, no matter how formulaic or perfunctory the process, does the certifying agency’s new ‘receipt’ of the application restart the one-year waiver period under section 401(a)(1).” According to FERC, New York DEC was obligated to act on the March 2, 2016 application by March 2, 2017. By failing to do so, it “waived its authority under section 401 of the [CWA].”

FERC added that, if parties could negotiate the date of receipt, as National Fuel and New York DEC attempted to do in their agreement, the Commission would be forced to entertain, on a case-by-case basis, challenges to the validity of the agreement between the parties. Allegations of unequal negotiating power “would be common and intractable. Instead, the bargaining power between the applicant and the certifying agency is brought closer to parity by a strict interpretation of section 401 that is consistent with the letter of the law.”

Moreover, FERC said, the “certainty provided in our interpretation strikes the appropriate balance between the interests of the applicant and the certifying agency, to the benefit of both. An applicant is guaranteed an avenue for recourse after a year of inaction by filing a petition for a waiver determination before the Commission … or after a denial by filing a petition for review in the court of appeals. A state certifying agency remains free to deny the request for certification, with or without prejudice, within one year if the agency determines that an applicant has failed to fully comply with the state’s filing or informational requirements. These options do not impede a state’s ability to work with an applicant to refile in accordance with the state’s requirements, preclude a state from assisting applicants with revising their submissions, do not harm the process of public notice and comment, and do not increase an applicant’s incentive to litigate. While the Commission does not encourage this practice, if the parties mutually desire a longer period for the 401 evaluation, the applicant may withdraw and refile its application.”

Rehearing Requests

On Aug. 14, 2018, New York DEC sought rehearing of the Waiver Order, arguing that its April 7, 2017 denial of National Fuel’s water quality certification application was timely because National Fuel agreed to extend the one-year deadline. New York DEC also requested a stay of the Waiver Order.

On Sept. 5, 2018, Sierra Club also filed a request for rehearing of the Waiver Order. It argued that FERC irrationally interpreted section 401 and allowed National Fuel to flout its agreement with New York DEC.

Statutory Interpretation

In its April 2, 2019 Order Denying Rehearing, FERC rejected New York DEC’s interpretation of section 401, i.e., that the one-year deadline in the statute can be altered by agreement. Such an interpretation “would run counter to the statutory intent of preventing delay.”

FERC noted that, in Hoopa Valley Tribe v. FERC, 913 F.3d 1099 (D.C. Cir. 2019) (Hoopa Valley Tribe), the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) “determined that a ‘deliberate and contractual idleness’ not only usurps the Commission’s ‘control over whether and when a federal [authorization] will issue,’ but would contravene section 401’s intended purpose, i.e. to prevent a state’s ‘dalliance or unreasonable delay.’ By contrast to the statutory schemes addressed in the cases cited by New York DEC, accommodating extension of the deadline here would contravene the statutory purpose of encouraging timely action on water quality certification applications.”

New York DEC observed in its rehearing request that, although the NGA does not expressly authorize the Commission to extend the 30-day deadline for acting on the merits of rehearing requests, FERC “regularly – and unilaterally – extends its own 30-day statutory deadline set forth in the NGA for acting on the merits of applications for rehearing by issuing tolling orders that extend this deadline indefinitely.” Courts have upheld FERC’s issuance of such tolling orders. “The CWA requires that a state ‘act’ within one year of receiving an application for certification and – just like the NGA rehearing provision that the Commission regularly extends on a unilateral basis – does not contain language expressly authorizing or prohibiting an applicant or a state from extending the statutory deadline. … Nevertheless … the Commission acknowledges that an applicant can unilaterally extend a state's CWA statutory timeframe by electing to withdraw and resubmit its application. Given that FERC can extend its own NGA statutory deadline, and an applicant can unilaterally extend a state's CWA statutory deadline, it follows that an applicant or a state should at least able to effectively extend its CWA deadline through a bilateral agreement between the state and the applicant.” The agreement with National Fuel to extend the deadline “is consistent with the CWA,” New York DEC asserted.

FERC pointed out that “whether the ‘withdrawal-and-resubmission scheme’ continues to be a viable procedure [to effectively extend the statutory one-year deadline] is in doubt after Hoopa Valley Tribe. At a minimum, we take the reasoning in Hoopa Valley Tribe – disapproval of an agreement to withdraw and resubmit as a failure and refusal to act resulting in a scheme that thwarts a Congressionally-imposed statutory limit – to apply equally to the facts here.”

FERC also asserted that its tolling orders comply with the NGA “because they reflect the Commission action required by the statute. By contrast, the authority to extend the deadline for acting under [CWA] section 401 that New York DEC seeks to exercise by agreement with National Fuel does not fit within the language of the statute.”

Finally, FERC said that “New York DEC is not without suitable recourse in the case of an incomplete application. New York DEC can deny an application with or without prejudice.”

Preventing Delay

New York DEC argued that the “withdraw and refile” practice would cause more delay than permitting state agencies and applicants to agree to extend the deadline for two reasons. “First, if National Fuel had withdrawn and resubmitted the … Application in January 2017 (when the Agreement was executed), [New York DEC] would have been obligated under its regulations to publicly notice the ‘new’ application for comment and hearings. … That burden – both on [New York DEC] and National Fuel – would be unnecessary because there would be no substantial change between the Joint application and the ‘new’ application. Second, as the Commission acknowledged, withdrawal and resubmittal would restart the one-year clock, pushing the deadline for a decision out considerably farther than April 7, 2017. The same scenario would have played out if [New York DEC] had denied the … Application for lack of information and National Fuel resubmitted a ‘new’ application.”

New York DEC asserted that no environmental or energy policy favors withdrawal and resubmission over a simple agreement to adjust the timeframe.

Sierra Club argued that FERC’s “fear of having to entertain case-by-case arguments about the validity of agreements between parties is not a justification for nullifying the [New York DEC] Denial, because the risk of a company making an after-the-fact allegation of unequal bargaining power is exactly the same whether the receipt date is altered via resubmission or written agreement. An applicant could just as easily file a motion for waiver asking FERC to set aside a resubmission, because, as National Fuel similarly contends, the company acted only because the state threatened to deny the application. … FERC’s decision here, therefore, does not insulate it from having to grapple with these sorts of case-specific allegations and does not provide the kind of certainty or ‘appropriate balance’ the Commission seeks.”

Rather, Sierra Club asserted, certainty and balance would be achieved by FERC “refusing to entertain the kind of one-sided, after the fact, self-serving allegations National Fuel is making here. Sophisticated and well-represented companies in National Fuel’s position are hardly powerless and always have the option of refusing to agree to the state’s request for resubmission or moving the receipt date via written agreement. If the state still refuses to act within a year of the most recent receipt date, then the company would have a valid waiver claim. And if the state denies the WQC without justification, the applicant can challenge the denial in court. The Commission therefore could create a predictable and even playing field by holding applicants to their actions and refusing to consider challenges to the validity of either a written agreement moving the receipt date or a resubmission of the application.”

Finally, Sierra Club argued that “FERC’s narrow interpretation of Section 401 also will result in an outcome that is contrary to the goals Congress established in passing the CWA and Section 401. [New York DEC] concluded that the Project would degrade water quality in New York and violate water quality standards. The Commission does not have the authority to second-guess those findings … and so the result of FERC’s decision in the Waiver Order is to green-light a project that is at odds with the [CWA]’s purpose to ‘restore and maintain the chemical, physical, and biological integrity of the Nation’s waters.’ … Allowing the Project to proceed also is antithetical to the purpose of Section 401, which was adopted so that ‘No polluter will be able to hide behind a Federal license or permit as an excuse for a violation of water quality standard[s]. No polluter will be able to make major investments in facilities under a Federal license or permit without providing assurance that the facility will comply with water quality standards.’ S.D. Warren Co. v. Maine Bd. of Envtl. Prot., 547 U.S. 370, 386 (2006) (quoting 116 Congr. Rec. 8984 (1970)).”

In response to these arguments, FERC reasserted that the purpose of the one-year deadline in section 401 “is to prevent delay. The responsibility to act within a reasonable period of time, not to exceed a year, lies with New York DEC. Given New York DEC has the ability to timely act on a section 401 water quality certification request, the Commission finds it misguided to blame the Commission for not facilitating extensions of time. Congress expressly provided for projects to move forward without state water quality certification when the state waives its authority.”

FERC concluded that the CWA “prohibits state agencies and applicants from entering into written agreements to delay water quality certifications, an interpretation consistent with Hoopa Valley Tribe. We have reasonably interpreted section 401 and find that the policy interests advanced by New York DEC cannot override the statute. In addition, New York DEC’s policy arguments fail to recognize countervailing considerations, including the interest in providing certainty around the deadline for state action. Binding calculation of the deadline to application receipt (as contemplated by the statutory language) makes determining the deadline more straightforward.”

Erie Boulevard

In its rehearing request, New York DEC cited Erie Boulevard Hydropower, LP v. FERC, 878 F.3d 258 (D.C. Cir. 2017) (Erie Boulevard), to support its contention that FERC was obligated to give weight to the agreement between New York DEC and National Fuel. According to New York DEC, Erie Boulevard required FERC to give weight to the contracts and settlements of the parties before it. New York DEC asserted that its agreement with National Fuel was a settlement on the discrete issue of when the application was received.

FERC found that New York DEC’s reliance on Erie Boulevard “is unavailing. In Erie Boulevard, the D.C. Circuit affirmed Commission orders regarding headwater benefits assessments pursuant to Federal Power Act section 10(f). In the underlying orders, the Commission considered a settlement between one of the headwater beneficiaries and the State of New York. Although Erie Boulevard gave effect to an agreement between parties while the Commission fulfilled its responsibilities under Part I of the Federal Power Act (FPA), by doing so, the Commission did not act in defiance of the statute, but instead acted consistently with its statutory authority to assess an equitable amount to compensate for headwater benefits. Unlike these proceedings, Erie Boulevard did not involve an agreement that contravened the intent behind a statutory provision.”

Contract Principles

New York DEC argued in its rehearing request that “[p]rinciples of waiver, estoppel, ratification, and basic contract law now bar National Fuel from challenging the agreement’s legal basis and prevent FERC from countermanding that agreement.” National Fuel’s failure to object at the time it executed the agreement with New York DEC, “plus its knowing acceptance of the Agreement's benefits, estops it from challenging the Agreement's validity.” These benefits include “avoiding an earlier denial of its application or a need to resubmit the Section 401 Certificate application.”

New York DEC noted that National Fuel did not argue that the agreement was invalid when it filed its March 3, 2017 request for reconsideration of the Certificate Order. “Instead, National Fuel waited until eight months after [New York DEC] denied its Section 401 Certificate application to attempt to undue the Agreement. Even when a contract is voidable, a party ‘must act promptly to repudiate’ the contract ‘or he will be deemed to have waived his right to do so.’ ” New York DEC asserted that it performed its promise under the agreement by continuing to review the application between March 2 and April 7, 2017, rather than denying the application outright and requiring National Fuel to re-submit a new application. Because “National Fuel accepted the benefits of the Agreement without objection,” it understood that the contract was in effect.

Sierra Club argued that “National Fuel is estopped from challenging the validity of the Receipt Agreement. The Commission should not sanction the practice of an applicant entering into a duly executed agreement, upon which the other party reasonably relied, and then seeking to have FERC nullify the agreement when the applicant does not get what it wants. The fact that National Fuel always had the option of refusing to sign the agreement and challenging an allegedly ‘meritless’ denial of its WQC in court undermines all allegations of coercion, as does National Fuel’s representation by sophisticated and capable counsel. There also is no question that National Fuel agreed in writing to waive its right to challenge the validity of the new receipt date in the Receipt Agreement.”

Sierra Club pointed out that National Fuel “had more than a month to repudiate the Receipt Agreement and alert [New York DEC] that it disputed the validity of the April 7, 2017 deadline for [New York DEC]’s decision. Instead, it remained inexplicably silent and allowed [New York DEC] to act in reliance on the agreed-upon receipt date.”

Sierra Club asserted that any one of these facts “should bar National Fuel from challenging the Receipt Agreement and the totality of National Fuel’s conduct must prevent it from using the validity of the Receipt Agreement as a basis for finding waiver.”

FERC disagreed that contract principles change the outcome. “Our interpretation of section 401 is not affected by the existence of a contract between New York DEC and National Fuel. Rather, we find, consistent with Hoopa Valley Tribe, that National Fuel and New York DEC cannot enter into ‘a written agreement … to delay water quality certification.’ ”

FERC concluded that “the validity of a contract does not control how we view the controlling language of section 401.”

Timing of Waiver Determination Request

Both New York DEC and Sierra Club argued that National Fuel’s waiver argument was untimely.

According to New York DEC, FERC erred by construing National Fuel’s Dec. 5, 2017 Renewed Motion for Expedited Action as a separate motion requesting a waiver determination. “National Fuel had presented the waiver issue in its March 3, 2017 motion for reconsideration or rehearing. At that time, the Agreement was in place and one year from the submittal of National Fuel's application had already elapsed. Accordingly, the claim that [New York DEC] waived its review notwithstanding the Agreement could and should have been raised at that time. By failing to raise the waiver issue at the earliest possible opportunity – and instead waiting until eight months after [New York DEC] had acted – National Fuel attempted to bootstrap a new argument to its earlier submission. National Fuel thus impermissibly filed an untimely supplement to its earlier request for rehearing. The supplement should have been rejected.”

Sierra Club similarly argued that National Fuel’s failure to challenge the validity of its agreement with New York DEC as a basis for finding waiver in its March 3, 2017 rehearing request “precludes it from subsequently raising this argument. The NGA plainly provides that a request for rehearing of a Commission’s order must be filed within 30 days from the date of the order being challenged and ‘shall set forth specifically the ground or grounds upon which such application is based.’ … National Fuel’s Rehearing Request did not mention the Receipt Agreement and instead argued that deadlines under the NGA and not Section 401 should govern. Because National Fuel’s Rehearing Request argued that a waiver had occurred on a completely different date as a result of a timeline in a completely different statute, it waived its ability to ask the Commission nine months later to reconsider its Order on the basis that the WQC was waived under Section 401 on March 2, 2017.”

Sierra Club also asserted that National Fuel is incorrect that FERC recently announced a new policy that effectively invited it to file a motion that renewed its waiver request in a manner that excused its failure to explicitly challenge the validity of the agreement with New York DEC in its rehearing request under section 401. FERC “made it abundantly clear that it was not announcing a new policy but merely was complying with the Commission’s longstanding practice of finding that Section 401’s one-year clock begins to run as of the state’s receipt of an application. … National Fuel easily could have argued in its March 3, 2017 Rehearing Request that the time for [New York DEC]’s decision had lapsed the day before because the Receipt Agreement was invalid under Section 401. Its failure to do so renders the Motion for Waiver invalid.”

FERC responded to these arguments by noting that its Waiver Order “recognized that National Fuel’s December 5, 2017 filing was a ‘separate basis for [its] claim that the New York [DEC] waived authority under section 401 of the Clean Water Act to issue or deny a water quality certification for the Northern Access 2016 Project.’ The Commission recognized that, as an expansion of its request for rehearing, the December 5, 2017 filing was ‘statutorily barred as outside the thirty day period for seeking rehearing;’ however, the Commission, referring to Millennium Pipeline Co., L.L.C. v. Seggos, [860 F.3d 696, 701 (D.C. Cir. 2017),] recognized that applicants can present evidence of waiver of a water quality certification to the Commission. Therefore, the Commission interpreted National Fuel’s filing as ‘effectively’ a petition for a waiver determination.”

FERC said it “reasonably treated National Fuel’s December 5, 2017 filing as a motion in these circumstances. The Commission’s regulations do not specify the timing or form for an applicant for water quality certification to present evidence of waiver of water quality certification. As noted in the Waiver Order, a motion may be filed at any time in a proceeding. Thus, the timing of National Fuel bringing the issue to the Commission’s attention (or whether it did so at all) are irrelevant for purposes of the determinations made in the Waiver Order. National Fuel was not required to file its request at any particular time, and in this case National Fuel’s timing did not result in its inability to seek the determination.”

Request for Stay

Both New York DEC and Sierra Club asked FERC to stay the Waiver Order.

New York DEC argued that, if the project proceeds without New York DEC-issued permits, “there will be no mitigating measures of the impacts that were specifically relied upon in the Environmental Assessment [FERC staff prepared for the project]. Under those circumstances, the Environmental Assessment's conclusion of no significant impact would no longer be valid. In turn, without a proper Environmental Assessment or other [National Environmental Policy Act (NEPA)] compliance, FERC's February 3, 2017 Certification and Order is itself invalid. Thus, not only must FERC reevaluate its NEPA obligations, it must also revoke the Certification and Order pending further administrative action.” New York DEC alleged that the impact of allowing the project to be constructed, particularly without additional mitigation measures, “would be severe.” Therefore, to prevent irreparable harm to the State of New York’s environment, FERC should stay the Waiver Order during the pendency of review of the New York DEC’s request for rehearing and any subsequent appeal.

Sierra Club argued that “FERC should not allow construction or preconstruction to proceed before making a final decision on all pending rehearing requests. As [New York DEC] concluded in its Denial, construction of the Project is likely to cause significant damage to New York State’s waterways in violation of the CWA. There is no evidence of harm to National Fuel from such stay, as it would merely preserve the status quo. A stay of construction also would be in the public interest, because it would forestall permanent damage to New York’s waterways while the Commission ensures that it makes the correct decision regarding waiver under Section 401.”

According to Sierra Club, “FERC has no authority to question [New York DEC]’s findings and conclusions, as the Commission has no substantive power under the CWA. … FERC therefore must accept [New York DEC]’s substantive findings that the Project will violate water quality standards, which likely will occur in the absence of a stay.”

FERC concluded that New York DEC and Sierra Club failed to demonstrate that harm is certain to occur in the near future in the absence of a stay. When preparing the Environmental Assessment for the project, FERC staff did not base its findings on any forthcoming conditions from New York DEC. When FERC found that the project would be an environmentally acceptable action, it “did not assume conditions by New York DEC. Given this conclusion, New York DEC and Sierra Club have not demonstrated that irreparable harm is likely to occur, and we deny their motions for stay.”

For More Information

See ¶603-1: State and Local Permit Requirements for more information on the waiver of state certification authority.

National Fuel Gas Supply Corp. and Empire Pipeline Inc., Order Denying Rehearing, 167 FERC ¶61,007 (2019) [Docket No. CP15-115-004].

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